The trade war with China has set up a nice trade, and it’s not what most traders are thinking.
After months of escalating tensions with China over trade, there appears to be an opportunity for a change.
The bounce in the U.S. markets has been fueled in part by hopes that some progress toward easing tensions will come soon.
While buying U.S. stocks for this reason may work, there’s a better looking trade around this theme in buying the Chinese stock market ETF (FXI).
The S&P 500 (SPY) and the FXI where in synch from their lows in January 2016 to their exuberant highs in January 2018. They even fell together in February of 2018.
However, they parted ways in the spring as the SPY started to trend higher and the FXI remained weak leading to a collapse in June.
The decline in FXI has been fueled by weak economic data in China so the decline is justified.
Right now, however, the data is still weak, but the chart is telling a different story.
FXI had a very bearish December like the SPY, but instead of crashing through new lows for the year, FXI held support and created a double bottom.
The $39-$40 level has been a pivotal level for FXI since August. It was also pivotal in 2017.
If FXI closes over $40 it would represent a good breakout of 3 weeks of consolidation and good buying opportunity with a stop under the double bottom low of $37.85.
The quick trade here would be to take profits at $42, but if there is any substantial shift in the very bearish economic sentiment this could represent a longer-term bottom.
Longer-term upside targets would be $44 and $46.
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation